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India's untapped potential: Are a billion people losing out because of spectrum?

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By LC for APCNews

CALGARY, Canada, 28 February 2011

As one of the world’s fastest growing economies and with over 65% of its billion-plus population under 35, India has huge potential. But according to Shyam Ponappa of the Centre for Internet & Society, its spectrum management – the electromagnetic waves that are used from home appliances like microwaves and remote controls, to radios, cell phones, and of course, the internet – could be a huge barrier to the country’s economic and social development.

Until the global economic downturn that began about two years ago, the economic model for spectrum distribution in India and many developing countries was based on the free market. But Ponappa demonstrates in a new report for APC that spectrum is worth treating as a public utility the way we do roads, electricity and other basic infrastructure, which would allow for people in rural areas to access spectrum-dependant services like mobile phones and wifi and increase quality of services for all.

Currently in India, as in most other countries, spectrum is being treated as a property, where “chunks” of spectrum are sold to the mobile phone and telecommunications operators with the highest bid. Commonly there are 3 – 4 operators in a developed country; however, in India there are up to sixteen. The extreme competition has resulted in the Indian bidders paying outrageous fees that they are never able to recuperate. So while the government makes a profit on the sale, this profit comes at a societal cost.

Ponappa proposes pooling spectrum and to have a set of network providers, who in turn serve operators for retail users. This effectively opens up the spectrum and could make costs ten or fifteen times cheaper than they are now.

“It is appropriate to push the concept of open spectrum in developed markets who underwent their development phase some 60 – 100 years ago and put in place basic infrastructure systems. But in countries like India and the Asian sub-continent, it does not make sense to do this because we are not at the same stage of economic development,” Ponappa told APCNews.

“When markets are well structured and organised,” he continues, “[government control] can be less effective and efficient for society as a whole, compared with open competition. However developing economies don’t have the integrated systems in place that advanced economies do. India does not have an adequately developed network of copper, optical fibre or microwaves covering most of its population. And we are at a stage of development at which infrastructure is a fundamental determinant of productivity, as well as of a reasonable quality of life.”

Ponappa argues that in India’s case it would be advisable for governments to work with other stakeholders – corporations, state-owned agencies, and civil society – on a collaborative solution. “It would be much more conducive to a sound economy to have either the government step in and open up the commercial spectrum, or to have two to three main operators (possibly subsidised, but not necessarily) as we do with the provision of utilities,” he says. Yet, the free market mentality continues to reign, and a surfeit of operators is trying to make a profit in the telecommunications wireless sector.

Everybody wants a piece of the pie

In India, every operator is assigned a sliver of spectrum for their exclusive use and the rest is assigned to the government, the public sector and defence.

The result is high-cost infrastructure for operators (setting up networks with multiple sets of more advanced equipment because of the limited spectrum, with the capital constraints resulting in less extensive networks in rural areas) as well as for users (who have to pay for all this equipment).

“Too many operators make for increased capital costs for each operator, and cumulatively for all operators,” Ponappa explains.

And these higher costs are increasingly difficult to recover from consumer-generated revenue, as India undergoes huge price wars. Many operators may eventually go bankrupt. While no consumers ever complain about low costs –and India has some of the world’s lowest mobile rates– they will complain about poor quality and unreliable service. Consequently, consumers may not have to pay much to use mobile services, but they may not always be able to make or receive calls when they need to, and do not have access to broadband.

While most countries have moved on to 3G networks (which has more capacity for a given spectrum band than 2G, meaning better call quality) as many as four of India’s sixteen operators have not even developed their 2G networks. Making the switch to 3G seems like a good idea, but there are substantial costs associated with deploying these more advanced techniques to both operators (for network upgrades) and for end users (in terms of new handsets).

Too much competition in this case has made operators inefficient.

Spectrum as a national common good

If spectrum were treated as if it were a public utility, posits Ponappa, each operator would have access to a bigger chunk of spectrum, and the traffic-handling capacity of each would increase at a lower cost.

“With the current model the capacity of networks is suffering because networks cannot afford to expand or make technical improvements without economic losses. Other infrastructure services such as electricity and water supply are managed by utility companies, which are typically monopolies for a product-segment, or duopolies for purposes of competition. So why not treat spectrum the same way?” suggests Ponappa.

Ponappa suggests treating networks, and spectrum as a part of networks, as we would an oil pipeline, where everyone accesses the same one, and pays a fee for its use.

This would bring more people onto the network and increase revenues, since operating costs would be shared. The more revenue it can generate, the more efficient operators will be, using the same high-capacity circuits. The more revenue the main operators have, the more they could invest in up-to-date technology to extend their networks and provide a better service to clients. The better the technology, the more people could access the internet and other now vital sources of information, as well as focus on broadband and infrastructure to the country’s isolated rural areas, which today have rudimentary communications infrastructure.

India’s rural populations, the lost resource

As a predominantly rural country, lack of basic IT infrastructure means that the largest segment of India’s population has no access to information and communications technologies.

Ponappa grew up on a farm in a rural area some 200 km from Bangalore where even fixed line phone networks were unreliable. “We have multiple telephone lines because we never know which one will work,” he says.

Given India’s massive rural population, this means that there are hundreds of millions of people that are unable to access the internet. Services like quality distance education are not even an option if basic infrastructure such as fixed telephone lines is not in place and the country itself is losing out on the incalculable potential of this untapped human resource.

Shyam Ponappa is a Distinguished Fellow at the Centre for Internet and Society, Bangalore. He is a finance and management consulting professional, and was a Senior Manager at Price Waterhouse in San Francisco, M&A Head for Citibank in India, then managed a boutique for alliances, business strategy, and financial placements in New Delhi. He has also advised the Indian government on reforms in telecommunications and energy, and writes a column on economic reforms for the ‘Business Standard’. He has an MBA from UC Berkeley, and studied Physics and History at the University of Madras.

This article was written as part of the APC’s project work on Spectrum for development, an initiative that aims to provide an understanding of spectrum regulation by examining the situation in Africa, Asia and Latin America.

Photo by kiwanja. Used with permission under Creative Content licensing.